Reply Brief — McDougall v. C. C. Mid West, Inc.

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No. 04-1126

IN THE

Supreme Court of the Anited States

HOWARD MCDOUGALL, ESTATE OF ROBERT

J. BAKER, ARTHUR H. BUNTE, JR., R.V. PULLIAM, SR.,

JOE ORRIE, JERRY YOUNGER, GEORGE J. WESTLEY,

RAY CASH and RONALD J. KUBALANZA,

Petitioners,

wi

C.C. MID WEST, INC.,

Respondent.

On Petition for a Writ of Certiorari to the

Michigan Supreme Court

PETITIONS’ REPLY MEMORANDUM

STEPHEN WASINGER *

STEPHEN F. WASINGER PLC

100 Beacon Centre

26862 Woodward Avenue

Royal Oak, MI 48226

(248) 414-9900

* Counsel of Record Counsel for Petitioners

WILSON-EPES PRINTING CO., INC. — (202) 789-0096 — WASHINGTON, D.C. 20001

® =

TABLE OF CONTENTS

Page

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REASONS FOR GRANTING THE WRIT................... |

1. This Court Has Jurisdiction Under 28 U.S.C.

BF PU scrsisiticasiveateiteitnictensiaisasinapnilptaiaaviianehannanicn |

2. The Michigan Supreme Court's Decision Con-

flicts with the Decisions of this Court and with

Decisions of the Courts of Appeals ................... 4

ee Aahanieiasandbiadenekpiiachiniidansmniuphesinibhinnsonianaatentien 10

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TABLE OF AUTHORITIES

CASES

“Aetna Health, Inc. v. Davila, 542 U.S. 200, 124

Fes SA. OEE GRIP Pa nencictncnnsneenictsnnsnmnceieiansedinnnies

Belknap, Inc. v. Hale, 463 U.S. 491, 103 S. Ct.

FETE CPD) cecsiihiinsataaniiilasiaisaaimalamninaiaitaniaieen

Cox Broadcasting Corp. v. Cohn, 420 U.S. 469,

OS BCR CE aT svntittiatcnninsitsnenstinnntanintonioen

Darcangelo vy. Verizon Communications, Inc.,

292 F.3d 184 (4th Cir. 2002) ncccccscsssccsssssscscccsciee

Dishman v. UNUM Life Ins. Co., 269 F.3d 974

SURE Ee. DIINO D Dninsssinesisncanticinnssieniahainiiadatenbebibdpieniitadan

Garren v. John Hancock Mut. Life Ins. Co., 114

F.3d 186 (11th Cir. 1997) (per curiam) ..........00

Goodyear Atomic Corp. v. Miller, 486 U.S. 174,

FOR SCG, FS CI svisccecansecnnsnarareisiienesaninnans

Ingersoll-Rand Co. v. McClendon, 498 U.S. 133,

SES, Se, BAR Ce isstinietsinrnniveinnataccnianinn

Mackey v. Lanier Collection Agency & Serv.,

Inc., 486 U.S. 825, 108 S. Ct. 2182 (1988)........

Mayeaux vy. Louisiana Health Serv. & Indemnity

Co., 376 F.3d 420 (Sth Cir. 2004)... ee ceeeees

Penny/Ohlmann/Nieman, Inc. v. Miami Valley

Pension Corp., 399 F.3d 692 (6th Cir. 2005) ....

STATUTES

Be Ua} EAR ss sisssessencsisnnsocteinhedstemnnioannicnten

Page

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REASONS FOR GRANTING THE WRIT

Respondent suggests in its Response that this Court lacks

jurisdiction over the decision of the Michigan Supreme Court

and further that its claims are not preempted because it alleges

that the claims themselves have nothing to do with plan

administration and plan interpretation. Contrary to Respondent's

assertions, this Court has jurisdiction and Respondent's claims

are related to plan administration and plan interpretation. This

Court has jurisdiction because the Michigan Supreme Court's

decision controls the scope of ERISA preemption by condition-

ing preemption not on whether the claim is related to plan

administration or plan interpretation, but rather upon whether

the decision of the fiduciaries was correct. As discussed in detail

below, the Court has jurisdiction because the Michigan Supreme

Court’s incorrect interpretation of ERISA preemption would

“seriously erode” federal policy by allowing review under state

law of ERISA plan administration and subjecting the fiduciaries

of the plan to burdensome litigation under conflicting standards.

Further, under the correct test, Respondent's claims are pre-

empted because the claims on their face relate to plan admini-

stration and plan interpretation.

1. This Court Has Jurisdiction Under 28 U.S.C.

§ 1257(a). |

Respondent asserts that this Court lacks jurisdiction be-

cause it alleges that no reviewable “[f]inal judgment or

decree” has been entered because the Michigan Supreme

Court remanded the case for further proceedings. However, a

close examination of the Michigan Supreme Court’s decision

leads to the conclusion that it constitutes a final judgment.

This is so because the decision equates preemption with the

correctness of the fiduciaries’ action under ERISA, and thus

requires the fiduciaries to litigate the correctness of their deci-

sion in state court under the guise (and under the conflicting

standards) of state law.

2

In Cox Broadcasting Corp. v. Cohn, 420 U.S. 469, 95 S.

Ct. 1029 (1975), this Court recognized that a judgment may

be considered final even though further state proceedings are

contemplated:

where the federal issue has been finally decided in the

state courts with further proceedings pending in which

the party seeking review here might prevail on the merits

on nonfederal grounds, thus rendering unnecessary

review of the federal issue by this Court, and where

reversal of the state court on the federal issue would be

preclusive of any further litigation on the relevant cause _

of action rather than merely controlling the nature and

character of, or determining the admissibility of evi-

dence in, the state proceedings still to come. In these

circumstances, if a refusal immediately to review the

state-court decision might seriously erode federal policy,

the Court has entertained and decided the federal issue,

which itself has been finally determined by the state

courts for purposes of the state litigation.

420 U.S. at 482-83, 95 S. Ct. at 1040 (emphasis added). In

applying the test laid out in Cox, the Court has held that the

denial of a preemption defense warrants immediate review.

For example, in Belknap, Inc. v. Hale, 463 U.S. 491, 103 S.

Ct. 3172 (1983), the Court found that it had jurisdiction

where the Kentucky Court of Appeals found that state law

misrepresentation and breach of contract claims were not -

preempted by the NLRA. Quoting Cox, the Court found that

permitting the state court action to go forward would involve

a serious risk of eroding the federal statutory policy of

allowing the NLRB to resolve claims concerning the subject

matter at issue. 463 U.S. at 497 n.5, 103 S. Ct. at 3176 n.5.

Similarly, in Goodyear Atomic Corp. v. Miller, 486 U.S. 174,

108 S.-Ct. 1704 (1988), once against relying upon Cox, the

Court held that the state court’s rejection of a federal pre-

emption defense concerning a workers’ compensation award

warranted immediate review. In finding that federal policy

3

would be seriously eroded by letting the action go forward,

the Court reasoned that further proceedings would seriously

erode federal policy because the state court decision “sanc-

tion[ed] direct state regulation” which would interfere with

the operation of federal nuclear facilities. 486 U.S. at, 179-80,

108 S. Ct. at 1709.

Respondent argues that Cox does not apply because here,

unlike in Cox, the Michigan Supreme Court’s decision recites

that the Court was not explicitly resolving the preemption

issue or finding the preemption defense invalid. However, the

Michigan Supreme Court’s decision did decide the scope of

the preemption defense. It stated:

it is impossible to determine from the available infor-

mation whether the former employees remained eligible

to self-contribute at the time the challenged commu-

nications were made. This may be a threshold issue

bearing on whether the fiduciaries activities were pro-

tected under ERISA’s preemption provisions.

(App. B at 4a.) According to the Michigan Supreme Court, the

relevant test for preemption is not the relationship between the

claim and plan administration, but whether the fiduciaries made

the correct benefit determination. In other words, if the former

employees were “eligible to self-contribute,” that is, if the

fiduciaries’ communication was a correct interpretation of the

plan, then the Respondent’s claims are preempted. However, if

the former employees were not “eligible to self-contribute,” that

is, if the fiduciaries’ communication was an incorrect inter-

pretation of the plan, then the claims are not preempted.

Thus, in further proceedings, the Michigan Supreme Court

may find the claims are preempted, but by finding that the

fiduciaries’ interpretation of the plan was correct. However,

this would not change the Michigan Supreme Court’s ruling

that preemption is determined by the correctness of the deci-

sion rather than the relationship of the claim to the admin-

istration of the plan, a ruling that will survive regardless of

4

the outcome of further proceedings. Further, the decision

would be unreviewable since the Petitioners would have

prevailed. This would “seriously erode federal policy” since it

would expose ERISA fiduciaries to varying state law stand-

ards (as well as the burdens of state court litigation) in contra-

vention of the entire purpose behind ERISA preemption. As

stated by this Court, Congress created ERISA preemption:

to ensure that plans and plan sponsors would be subject

to a uniform body of benefits law; the goal was to

minimize the administrative and financial burden of

complying with conflicting directives among States or

between States and the Federal Government. Otherwise,

the inefficiencies created could work to the detriment of

plan beneficiaries. . . . Particularly disruptive is the

potential for conflict in substantive law. It is foreseeable

that state courts, exercising their common law powers,

might develop different substantive standards applicable

to the same employer conduct, requiring the tailoring of

plans and employer conduct to the peculiarities of the

law of each jurisdiction. Such an outcome is funda-

mentally at odds with the goal of uniformity that

Congress sought to implement.

Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 142, 111 S.

Ct. 478, 484 (1990) (citations omitted). The Michigan

Supreme Court's decision that the application of preemption

depends on whether the decision made by the fiduciaries was

correct under the terms of the plan eviscerates ERISA pre-

emption. Under these circumstances, the decision constitutes

a final judgment within the meaning of 28 U.S.C. § 1257(a).

2. The Michigan Supreme Court’s Decision Conflicts

with the Decisions of this Court and with Decisions

~ of the Courts of Appeals.

Respondent argues that this Court’s decision in Aetna

Health, Inc. v. Davila, 542 U.S. 200, 124 S. Ct. 2488 (2004),

does not conflict with the Michigan Supreme Court’s decision

because Aetna Health dealt with complete preemption where-

5

as this case involves conflict preemption. In making this

argument, Respondent fails to acknowledge the reasoning

which led to the Court’s holding that the claims in Aetna

Health were preempted. Instead, Respondent argues that it is

attempting to enforce an independent duty imposed under state

law and is not seeking to challenge a benefit determination.

However, this precise argument was rejected in Aetna Health:

Because this duty of ordinary care arises independently

of any duty imposed by ERISA or the plan terms, the

argument goes, any civil action to enforce this duty is

not within the scope of the ERISA civil enforcement

mechanism.

The duties imposed by the THCLA in the context of

these cases, however, do not arise independently of

ERISA or the plan terms. . . . [I]f a managed care entity

correctly concluded that, under the terms of the relevant

plan, a particular treatment was not covered, the man-

aged care entity’s denial of coverage would not be a

proximate cause of any injuries arising from the denial.

Rather, the failure of the plan itself to cover the re-

quested treatment would be the proximate cause. . . .

Thus, interpretation of the terms of respondents” benefit

plans forms an essential part of their THCLA claim, and

THCLA liability would exist here only because of

petitioners’ administration of ERISA-regulated benefit

plans. Petitioners’ potential liability under the THCLA

in these cases, then, derives entirely from the particular

rights and obligations established by the benefit plans.

542 U.S. at __., 124 S. Ct. at 2497-98 (citations omitted)

(emphasis added).

As the reasoning indicates, the question is not whether state

law imposes a legal duty which determines the preemption

question, but rather the relationship between the legal duty and

plan administration. The claim in Aetna Health would not have

existed but for the plan administrator’s interpretation and

denial of an ERISA benefit claim. So too, in this case, the

6

Respondent's claims would not eXist but for the fact that the

fiduciaries made a benefit determination regardimg the ability

of the participants to make self-contributions and communi-

cated that decision to the participants. The fact that, according

to Respondent, the decision was incorrect, or that it was alleg-

edly motivated by “union-related or competitive animus” (Re-

sponse, p. 15), does not change the fact that the claim is based

upon, and related to, actions taken in administering the plan.

It is the relationship between the claims and plan admin-

istration that determines whether the claims are preempted. This

explains why Respondent’s reliance on Mackey vy. Lanier

Collection Agency & Serv., Inc., 486 U.S. 825, 108 S. Ct. 2182

(1988), is misplaced. Respondent relies on Mackey for the

proposition that “run-of-the-mill” claims against ERISA plans,

including tort claims, are not preempted. But the types of claims

listed in Mackey as “run-of-the-mill” claims, such as unpaid rent

or failure to pay creditors, highlights that those claims have

nothing to do with the administration of the plan. Here, in

contrast, the claims are based upon core issues of plan

administration—making benefit determinations and communi-

cating those determinations to participants. In the Michigan

Supreme Court’s view, the preemption analysis tums on

whether the employees in question were “eligible” to self-

contribute. But determining whether the employees were “elig-

ible” requires interpreting the plan. Thus, under the Michigan

Supreme Court’s reasoning, if the benefit determination is

correct, the claims are preempted, but if the benefit determi-

nations are incorrect, the claims are not preempted, and the

fiduciaries may be liable under state law. Respondent seems to

suggest an even more extreme standard whereby the claims are

not preempted as long as the plaintiff alleges an improper moti-

vation, thus potentially exposing fiduciaries to liability based

upon state law even if the benefit determination is correct.

Respondent’s attempt to harmonize the Michigan Supreme

Court’s decision with the decisions of the various Courts of

J

Appeals actually demonstrates the distinction between claims

based upon conduct involving core plan administrator func-

tions, and claims based upon unrelated conduct. As discussed

below, these cases highlight that it is the relationship between

the claims and plan administration, not the label placed on the

claim or the identity of the parties, that determines whether

the claim is preempted. For example, in Garren v. John

Hancock Mut. Life Ins. Co., 114 F.3d 186 (11th Cir. 1997)

(per curiam), the plaintiff alleged that a claim for tortious

interference with contract was not preempted because the

defendant insurance company was not the plan administrator.

In finding the claim preempted, the court reasoned that it was

not the relationship between the parties, but rather the

relationship between the claim and plan administration that

controlled. 114 F.3d at 188. Garren rejects the premise

advanced by Respondent that its claims are not preempted

because Respondent is “an outsider to ERISA’s regulatory

framework.” (Response, p. 14.)

Respondent tries to distinguish Mayeaux v. Louisiana

Health Serv. & Indemnity Co., 376 F.3d 420 (Sth Cir. 2004),

by arguing that in Mayeaux the intentional interference with

contract claim was found to be preempted because the doctor

alleging the claim was trying to “stand in the shoes” of the

participants. (Response, p. 24.) However, Mayeaux did not

base its decision on the fact that the doctor was trying to

assert a claim for denial of coverage as Respondent contends,

but rather because allowing the doctor to assert a state law

claim based upon the plan administrator’s conduct in deciding

benefit claims “would undoubtedly jeopardize the relation-

ships among the traditional ERISA entities of which the

treating physician is not one. These are the sort of claims that

go to the very heart of the ERISA administrative process.”

376 F.3d at 433. As in Mayeaux, Respondent seeks to impose

liability on the fiduciaries for their actions in interpreting the

plan to not allow self-contributions in the situation at issue,

and for communicating that decision to the participants. The

8

relationship between the plan fiduciaries and the participants

in making benefit determinations is, as stated in Mayeaux, the

“very heart” of pian administration. It does not take much

imagination to imagine the disabling effect on plan fiduciaries

if every time they made a benefit determination and com-

municated that determination to the participants, they could

be held liable to a third-party under state law.

Indeed, the cases relied upon by Respondent to demon-

strate that the Michigan Supreme Court’s decision is con-

sistent with the decisions of the Courts of Appeals actually

demonstrates the opposite. For example, in Dishman v. UNUM

Life Ins. Co., 269 F.3d 974 (9th Cir. 2001), the plain-

tiff alleged that the plan had hired an investigator to elicit

information about the plaintiff's employment status by falsely

claiming to be a bank loan officer; that the investigator

attempted to gain personal information from neighbors and

acquaintances by claiming the plaintiff was seeking to coach a

basketball team; and that the investigator had obtained per-

sonal credit card information and travel itineraries by falsely

impersonating the plaintiff. 269 F.3d at 979-80. In holding that

the claim was not preempted by ERISA, the Ninth Circuit

noted that the plaintiff's “damages for invasion of privacy

remain whether or not UNUM ultimately pays his claim. His

tort claim does not depend on or derive from his claim for

benefits in any meaningful way.” 269 F.3d at 983. Further, the

Court stated that Congress’ intent in creating ERISA preemp-

tion “was not to provide ERISA administrators with blanket

immunity from garden variety torts which only peripherally

impact daily plan administration.” 269 F.3d at 984.

Here, in contrast, the Michigan Supreme Court’s holding

requires a determination of whether the participants were

eligible under the terms of the plan to make self-contri-

butions. The Respondent’s claim is dependent upon showing

that the determination under the plan (and the communication

of the determination) was incorrect. Yet the dependence .of

9

Respondent’s claim upon the incorrectness of the determina-

tion is exactly the type of claim that Aetna Health determined

was preempted by ERISA. There is no imaginable way that

benefit determinations and the communication of the same

can be considered peripheral to plan administration. Indeed,

making benefit determinations and communicating those de-

terminations is the core of plan administration.

Similarly, in Darcangelo v. Verizon Communications, Inc.,

292 F.3d 181 (4th Cir. 2002), the plaintiff alleged that the plan

administrator “solicited and disseminated [plaintiff's] private

medical information in order to assist [the employer] in its effort

to declare [plaintiff] a ‘direct threat’ to her coworkers so that she

could be fired.” 292 F.3d at 186. In finding that the plaintiff's

claims could not be dismissed on preemption grounds at the

motion to dismiss stage, the Fourth Circuit stated:

If [the plan administrator] obtained [plaintiff's] medical

information in the course of processing a benefits claim or in

the course of performing any of its administrative duties un

der the plan, these claims would be “related to” the ERISA

plan under § 514 and would therefore be preempted.

292 F.3d at 188. However, the Fourth Circuit found that it

could not determine whether the claims were preempted

because “it is not apparent from [plaintiff's] complaint that

the conduct charged had anything to do with administering

the employee benefits plan.” 292 F.3d at 188.

In this case, the Respondent’s complaint does indicate that

the claim has to do with administering the plan. For example,

the complaint alleges that representatives of Central States

met with participants to describe how employment with C.C.

Mid West would affect their rights under Central States’ plan.

(Complaint, § 24.) The complaint alleged that Central States

wrote to the participants to advise them about benefit deter-

minations and the letter encouraged the participants to contact

Central States to “determine how this will affect your benefit

re

10

status. .. .”” (Complaint, J 25.) Further, the letter attached to

the complaint as an exhibit states:

The Trustees also agreed to permit those participants who

are on lay-off status as a result of Central Transport, Inc.’s

shut-down to continue to make pension self-payments for a

period of up to five (5) years provided that self-contri-

butions will not be accepted for any period during which a

participant is performing work for any company affiliated

with either U.S. Truck Company, Inc. or CenTra, Inc.

(Complaint, Ex. A.) Finally, based upon these allegations,

Respondent’s complaint challenged the fiduciaries’ “refusal

to accept self-contributions from owner-operators.” (Com-

plaint, § 30.) Thus, in contrast to the complaint in Dar-

cangelo, the complaint in this case makes it clear that the

challenged conduct occurred in the performance of adminis-

trative duties under the plan. Therefore, under Darcangelo,

the claim would be preempted.

Finally, in Penny/Ohlmann/Nieman, Inc. v. Miami Valley

Pension Corp., 399 F.3d 692 (6th Cir. 2005), an employer

brought an action against the record-keeper of various benefit

plans alleging a breach of contract claim. In finding the claim

not preempted, the Sixth Circuit noted that the record-keeper

“does not serve as a fiduciary” to the plans. 399 F.3d at 700.

The Sixth Circuit found that the record-keeper was not a

“{t]raditional ERISA plan entit[y]” such as the plan, the

employer, the fiduciaries, and the beneficiaries. 399 F.3d at

700. Here, in contrast, the Petitioners are plan fiduciaries, and

they are being sued for their actions in making a benefit

determination, and communicating that decision to the bene-

ficiaries. Thus, Penny/OhImann/Nieman, like the other cases

cited by Respondent, does not support its position, and in fact

highlights that claims involving benefit determinations are

preempted.

CONCLUSION

For the reasons stated, this Court should grant the Petition

for a Writ of Certiorari.

* Counsel of Record

Respectfully submitted,

STEPHEN WASINGER *

STEPHEN F. WASINGER PLC

100 Beacon Centre

26862 Woodward Avenue

Royal Oak, MI 48226

(248) 414-9900

Counsel for Petitioners